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on Contract Theory and Applications |
| By: | Yamashita, Takuro; Murooka, Takeshi |
| Abstract: | We study an adverse selection environment, where a rational seller can trade a good of which she privately knows its value to a buyer, and there are gains from trade. The buyer’s types differ in their degree of inferential abilities: A rational type correctly infers the value of the good from the seller’s offer, whereas a naive type under-appreciates the correlation between the seller’s private information and offer. We characterize the optimal menu mechanism that maximizes the social surplus. Notably, no matter how severe the adverse selection is (in particular, even when no trade is the unique possible outcome if all agents are rational), all types of buyers trade in the optimal mecha- nism. The rational buyer’s trade occurs at the expense of the naive buyer’s losses. We also investigate a consumer-protection policy of limiting the losses and discuss its implications. |
| Keywords: | Adverse selection; Inferential naivety; Mechanism design; Behavioral contract theory; Consumer protection |
| JEL: | D82 D86 D90 D91 |
| Date: | 2021–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:125925&r= |
| By: | Alipranti, Maria; Petrakis, Emmanuel; Skartados, Panagiotis |
| Abstract: | We consider a vertically related market in which an upstream monopolist supplier trades, via interim observable two-part tariff contracts, with two differentiated goods' downstream Cournot competitors. We show that passive partial backward ownership (PPBO) may be pro-competitive and welfare enhancing. PPBO exacerbates the upstream's commitment problem and yields lower wholesale prices, and higher industry output, consumers surplus, and welfare than in the absence of PPBO. |
| Keywords: | Passive Partial Backward Ownership; Vertical Relations; Two-Part Tariffs; Interim Observable Contracts |
| JEL: | D43 L13 L14 |
| Date: | 2021–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:33271&r= |
| By: | Yamashita, Takuro; Murooka, Takeshi |
| Abstract: | We consider an adverse selection environment between an informed seller and an uninformed buyer, where no trade occurs when all buyers are rational. The buyer may be a “behavioral” type in the sense that he may take actions different from a rational type. We show that, for any incentive-feasible mechanism with any non-trivial trade, the buyer’s ex-ante expected payoff is strictly negative. Our result implies that whenever trade occurs, some behavioral types must incur losses. |
| Keywords: | Adverse selection; Inferential naivety; Mechanism design; Behavioral contract theory; Consumer protection |
| JEL: | D82 D89 D90 D91 |
| Date: | 2021–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:125926&r= |
| By: | David Martimort (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, EHESS - École des hautes études en sciences sociales); Jérôme Pouyet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université, ESSEC Business School - Essec Business School); Thomas Trégouët (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université) |
| Abstract: | An incumbent seller contracts with a buyer and faces the threat of entry. The contract stipulates a price and a penalty for breach if the buyer later switches to the entrant. Sellers are heterogenous in terms of the gross surplus they provide to the buyer. The buyer is privately informed on her valuation for the incumbent's service. Asymmetric information makes the incumbent favor entry as it helps screening buyers. When the entrant has some bargaining power vis-à-vis the buyer and keeps a share of the gains from entry, the incumbent instead wants to reduce entry. The compounding effect of these two forces may lead to either excessive entry or foreclosure, and possibly to a fixed rebate for exclusivity given to all buyers. |
| Keywords: | foreclosure,excessive entry,exclusionary behavior,incomplete information |
| Date: | 2021–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03328387&r= |
| By: | Xiaowei Hu; Jaejin Jang; Nabeel Hamoud; Amirsaman Bajgiran |
| Abstract: | The inventories carried in a supply chain as a strategic tool to influence the competing firms are considered to be strategic inventories (SI). We present a two-period game-theoretic supply chain model, in which a singular manufacturer supplies products to a pair of identical Cournot duopolistic retailers. We show that the SI carried by the retailers under dynamic contract is Pareto-dominating for the manufacturer, retailers, consumers, the channel, and the society as well. We also find that retailer's SI, however, can be eliminated when the manufacturer commits wholesale contract or inventory holding cost is too high. In comparing the cases with and without downstream competition, we also show that the downstream Cournot duopoly undermines the profits for the retailers, but benefits all others. |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2109.06995&r= |